May 19, 2011
I’m writing because my family and I were affected by the economic collapse of 2008, following Al Quaeda's attack on the World Trade Centers ,and we don’t want it to happen again.
When the planes hit the WTC on Sept 11, my son was a pilot, in the middle of some exam that would advance him to Captain status for Mesa Airlines, and my daughter was about to begin attending Parsons in NYC.
Long story short, their lives were discombobulated, As was mine, as their mother. My son, the pilot on 9-11, is now a lawyer, but jobless, despite graduating summa cumn laude. My daughter is working, in a hostile environment, to become a Pilates instructor, despite graduating from Parsons. Me, I am dealing with debts accumulated in trying tio keep them aflooat through these hard times.
Wall Street greed and outrageous pay practices, following the economic collapse of 9-11, were a major cause of the2008 collapse, that followed the difficuklt times after 9-11. One way to change the incentives so they don’t collapse our economy again would be for regulators to use a *safety index* for incentive compensation, instead of a profit index.
Currently, most bankers receive stock options. So if they can generate more profits, the stock price goes up, and their options become more valuable. Moiral Hazard, writ large.
Instead, what if they used the bank’s bond price, which measures the overall ability of the bank to repay its own debt? Another measure of bank stability is the spread on credit default swaps (the insurance-like policies that are essentially bets, where one gambler bets with another that a particular firm will fail). The closer a bank comes to failing (such as in failing to pay of its bond debt), the bigger the spread on credit default swaps.
What if they just restored Glass Steagall, which served us well in the years after Wall Street greed brought the Great Depression down on our heads.
Thank you for considering my comment,
Kathy Krassa